Timely superpower funds from China to ease woes

Republic’s generous gesture is like prescribing right medicine to a sick patient, say top businessmen.

LAST Monday, Chinese Premier Li Keqiang announced numerous measures to help Malaysia stabilise its financial market, and their positive impact was felt the next day with the gains in ringgit and bonds seen.

For the country, the most significant measure had to be Beijing’s pledge to buy up Malaysian government bonds, which have been hit by foreign dumping since the second half of last year after crude oil prices began to plunge.

For 1Malaysia Development Bhd (1MDB), the sale of its power assets under Edra Global Energy Bhd to state-owned China General Nuclear Power Corporation for RM9.83bil cash was a huge relief. This transaction will help 1MDB cut its debts of RM42bil by about 24%.

And for Prime Minister Datuk Seri Najib Tun Razak, China’s choice of Malaysia to issue the first “silk-road” bond and plan to invest more here is a major diplomatic victory.

As expected, sentiment on the capital market improved the following day. The ringgit rose the highest among emerging-market currencies, while stocks and bonds gained, due mainly to the power deal, according to Bloomberg. The ringgit strengthened 1.3% to 4.2495 a dollar in Kuala Lumpur while the KLCI index rose 0.5%.

On the sale of power assets, Credit Suisse said in its research report on Nov 24: “The sale of the 1MDB power unit is the first step towards resolving 1MDB’s RM42bil debt. We see this news as positive for the ringgit. The sale of 60% of Bandar Malaysia will likely be concluded by year-end. We believe 1MDB would then be wound down.”

Strong ties: (picture left) Najib showing the development of Putrajaya to Li during the latter’s recent visit to Malaysia.

Strong ties: Najib showing the development of Putrajaya to Li during the latter’s recent visit to Malaysia.

To recap, at the Malaysia-China High-Level Economic Forum on Nov 23 in Kuala Lumpur, Li said: “It is imperative to stabilise the financial market. So, we want to assume a market role by purchasing your treasury bonds in accordance with market principles.”

The Chinese premier also said that in the next five years, China was expected to import foreign goods worth US$10 trillion (RM42.6 trillion) and this demand could unleash business opportunities for Malaysian firms.

“A waterfront pavilion gets the moonlight first,” he said, citing a Chinese proverb. This means that Malaysia, being close in terms of distance and diplomatic ties with China, will enjoy the most benefits generated by China’s economic policy.

Li was in Malaysia for four days from Nov 20 to 23 to attend the Asean-East Asia Summit and to hold bilateral talks with Najib.

But Li, who was paying his first official visit to Kuala Lumpur as premier, did not reveal how much Beijing would invest in Malaysian bonds. However, businessmen who know China well believe this bond purchase could be major.

“As the Chinese Premier handles China’s economic policy and affairs, I believe this bond purchase will be significant enough to stabilise the ringgit that is grossly under-valued,” says Datuk Ter Leong Yap, president of the Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM).

Ter was among the 10 corporate captains whom Li met with before speaking at the forum. Ter, in this private meeting, says he had proposed that China buy Malaysian bonds to halt the ringgit’s decline.

Malaysian top businessmen meeting with Premier Li on Nov 23 of 2015. -
Ter (left) sharing a light moment with Li during a meeting as Ong (centre) looks on.

The ringgit, seen as facing further decline due to the impending hike in US interest rates, has been hit by three waves of outflow of foreign funds.

The first came after the crude oil price plunge, the second after the 1MDB saga was highlighted and the third, political instability amid calls for the resignation of the Prime Minister.

The ringgit has lost about 20% of its value to the dollar so far this year. Its fall is the biggest among currencies in the region.

The outflow of funds has not only hit Malaysia’s economy and investor confidence, but also reduced its international reserves tremendously.

Li also announced that China would provide a 50 billion yuan (RM33bil) quota under the Renminbi Qualified Foreign Institutional Investor (RQFII) programme for Malaysian institutional funds to purchase shares and bonds directly in the world’s second largest economy.

In response to this announcement, Bank Negara Malaysia said the RQFII programme would complement the renminbi clearing bank arrangement in Malaysia. And collectively, the initiatives will support the growing bilateral trade, investment and financial flows as well as position Malaysia as an offshore renminbi centre in the region.

In conjunction with Li’s visit, China Construction Bank (Asia) Corporation Ltd announced it would list the world’s first ever 21st Century Maritime Silk Road bond of one billion yuan (RM667.1mil) on Bursa Malaysia. The notes will support China’s “The Land & Maritime Silk Road” initiative.

“These announcements, together with the bond purchase, are significant for Malaysia as they imply that this big economic power is reading Malaysia positively and has confidence in our country. Confidence crisis is a major reason for people dumping the ringgit.

“By making announcements to invest in Malaysia and invite local funds to invest in China, Li is sending two strong signals: China is reading Malaysia positively and this superpower has confidence in Malaysia,” said Ter in an interview.

Chinese daily Nanyang Siang Pau describes Li’s announcements as “gifts” that will stabilise Malaysia’s financial market, while China Press sees these as “timely rain after a long drought”.

During one of his speeches here, Li told Malaysia to get ready for the influx of Chinese tourists, as his government would encourage its people to visit the country.

Chinese tourists, who form a significant portion of in-bound visitors, have declined since the dis­appearance of Flight MH370 last year.

As tourism is high on Najib’s agenda to bring in the much-needed foreign exchange earnings, this influx will cheer Malaysia up.

But China’s generous gesture is not to be taken that it’s all about friendship, though both countries say bilateral ties have been lifted to a new height now. There is the interplay of diplomatic and economic reasons.

It is public knowledge that Beijing appreciates Malaysia’s stance to play down China’s dispute with other nations in the disputed waters of South China Sea, in which China, Japan and several South-East Asian nations, including Malaysia, are territorial claimants.

China’s construction on islands and reefs in the disputed waters has caused diplomatic tension, heightened recently by the United States’ move to send a warship within 12 nautical miles of a Chinese reef in the area.

There are also investment returns and economic benefits in the long run for the Chinese.

“China’s investments in Malaysia is a smart move, contrarian investing at its finest. What the wise man does at the beginning, the fool does at the end. Our fundamentals are intact, ringgit tremendously undervalued,” says Ian Yoong Kah Yin, business development director of Red Sena Bhd.

This former investment banker at CIMB believes Chinese investments will pay as the ringgit should improve to 3.70-3.90 to a dollar by the end of 2016, from current levels of around 4.25 to 4.30.

In response to China’s timely aid, Najib pledged that Malaysia was committed to awarding the Johor Baru-Gemas double-track rail project to a consortium of Chinese companies. Indeed, China’s state-owned construction giants have been awarded local projects worth over RM15bil in the last three years.

Najib also took note of China’s interest in the high-speed rail project between Kuala Lumpur and Singapore, but said this would be decided via international tender.

Referring to the bilateral trade target of US$160bil (RM683mil) by 2017, the Prime Minister said there should be doubling of efforts to reach the level. Annual bilateral trade has exceeded US$100bil (RM426bil) since last year.

Summing up Li’s visit to Malaysia, QL Resources Bhd’s Dr Chia Song Kun says: “All these measures announced by Premier Li during our most trying times will certainly help Malaysia, be it from the economic or political aspect.”

The vice-president of the Selangor/Kuala Lumpur Chinese Chamber of Commerce adds: “Our country is facing a confidence crisis and this has undermined business and consumer confidence. China’s move this time is like prescribing the right medicine to a sick patient.”

600-year-old bond: Li (second from right) and his wife Cheng Hong touring the Cheng Ho Museum during their visit to Malacca. — Bernama

“WE come in peace, as always,” is the strong message sent out by China’s Li Keqiang to Malaysia and other countries in the region during his recent visit.

When the Premier made repeated refe­rence to Admiral Zheng He (or Cheng Ho) in his speeches, he reiterated that the prominent navigator had embarked on his voyages with friendship and peace in mind.

Admiral Zheng He and his Chinese fleet of the Ming Dynasty did not invade the lands they visited 600 years ago, and China has no plans to do so now, too.

China wishes to assure its neighbours that its rise as a superpower in the realms of politics, economy, and military should not be seen as a threat.

On the contrary, it is now offering vast opportunities to cooperate for mutual benefit while insisting on harmonious ties with other countries.

Li, who was on his first official visit to Malaysia as the Premier of China, had inclu­ded Malacca in his itinerary.

Dotted with historical landmarks, the state has a meaningful position in the relations between Malaysia and China.

It was where it all began.

From the Sky Tower observatory deck on the 43rd floor of The Shore shopping complex, Li looked out at the Strait of Malacca, which Admiral Zheng sailed through to dock at the port of Malacca during his voyages.

At the Baba Nyonya Heritage Museum, Li learned about Peranakan culture that came into existence from the interactions between people from the two lands. He also toured the Cheng Ho Cultural Museum, where Admiral Zheng’s warehouse once stood.

But Li’s visit to the state was more than just a walk down memory lane.

Malacca is now the “friendly state” to China’s southern province of Guangdong. This is the first of such status approved by the Cabinet, as the usual practice has been establishing a sister city tie with another foreign city instead of a state-to-state pact.

According to the Chinese Foreign Ministry, Guangdong province is now “actively dovetailing development with Malacca, and making preparations to build a modern seaside industrial park integrating maritime high-tech industries, deep-water wharf and logistics centres”.

The Strait of Malacca is included in the route of the 21st-century Maritime Silk Road, together with the land-based Silk Road Economic Belt, which represents China’s great ambitions to boost connectivity and cooperation with countries in the world.

Malacca Port is also one of the six Malaysian ports to form an alliance with 10 Chinese ports, as specified in a memorandum of understanding signed between both coun­tries during Li’s visit.

Li’s stopover in Malacca, although brief, has reverberating effects. Besides giving an official stamp of approval to the bilateral project in Malacca, Li wanted to get across the message of peaceful exchanges, harmony and inclusiveness.

It serves as a “silent counterattack” at a time when the international community plays up the South China Sea issue, referring to the territorial row between China and a few South-East Asian nations including Malaysia.

China’s assertiveness over the waters, as illustrated by its recent reclamation activities, has prompted the United States to patrol in the disputed waters. The US Navy has received the support of Japan, which is also embroiled in a territorial dispute with China over islands in the East China Sea.

Opposing the interference from countries outside the region, Li, when speaking at the Asean-China Summit in Kuala Lumpur during his visit, said China sees the high-profile intervention as an act that does no good to anyone.

He said China is committed to peaceful settlement of the dispute through negotiation and consultation.

“Together with our Asean friends, we have the confidence to make the South China Sea a sea of peace, friendship and cooperation for the benefit of all countries in the region.”